Housing Market Hits Awkward Teenager Growth Spurt

By Farren Powell

NEW YORK (MainStreet)--The number of prospective home buyers signing contracts soared last month with home sales reaching its highest level in more than six years -- signaling rising home prices and a road to recovery for the U.S. housing market.

The Pending Home Sales Index, a forward-looking indicator for contract signing from the National Association of Realtors, rose 6.7% in May from April, and is now up 12.1% from last year. Pent-up demand, a shortage of inventory and recent increases in mortgage interest rates are fueling the rise in home sales.

"Even with limited choices, it appears some of the rise in contract signings could be from buyers wanting to take advantage of current affordability conditions before mortgage interest rates move higher," said Lawrence Yun, chief economist at the National Association of Realtors. "This implies a continuation of double-digit price increases from a year earlier, with a strong push from pent-up demand."

Yun expects the national median existing-home price to rise more than 10% to nearly $195,000 - the strongest gain since 2005.

Higher interests are pushing prospective buyers to take the leap to purchase a single-family home.

The average rate on the 30-year fixed mortgage leapt to 4.46% from 3.93% this week in response to the Federal Reserve's comment to taper off its bond-buying stimulus campaign. A 30-year fixed mortgage rate from national mortgage lender Freddie Mac spiked from 3.54% in the first week of April to 4.46% at the end of June - an increase of over one full percentage point.

"The current increase in sales might be a little bit of a spike because it makes a different to go from 3.9% to 4.5% in one week," said Svenja Gudell, senior economist at Seattle-based Zillow.com.

The housing market is still prone to sharp sudden rates of growth, said Jed Kolko, chief economist at Trulia.

"The awkward teenager is in a stage of a growth spurt where we're seeing a sharp increase in growth and at the same time the housing market is expected to start walking on its own two feet," Kolko said. "It's much like a teenager who is about to lose his allowance and even the suggestion has causes interest rates to rise."